The majority of experienced traders today prefer trading in bullish markets because of their expected price rise. While the thought of having to ride a market that is going up indeed gives an impression of potential gains, having to execute a wrong trading plan in these markets can be catastrophic. In addition, having to ride a market that is quickly going up also pose potential losses if a trader is unaware of the right exit points.
Among the most sought-after chart patterns that display a bullish market trend is the Parabolic Run Up Pattern. In this article, we’ll be sharing what a Parabolic Run Up pattern is and how to implement it in the actual market.
(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings. In fact, Around 67% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)
- 1 What is a Parabolic Run Up Pattern?
- 2 How to Trade the Parabolic Run Up Pattern on eToro
- 3 Entry and Exit Points on a Parabolic Run Up Pattern
- 4 Additional notes when trading with a Parabolic Run Up Pattern
- 5 Conclusion
What is a Parabolic Run Up Pattern?
First of all, the name is derived from the word “Parabola”, which in mathematics is a symmetric curve. In the area of trading, this parabolic curve shows a sign of an extremely bullish market. It has a series of candles mainly long bullish candles and a series of candles in consolidation or short price decline. Along with the steep price rise, there will be a series of breaks. The long bullish candles are what makes this pattern very profitable – provided that the right entry point is met. Traders also call this pattern a “Staircase Pattern” because it is made up of a series of steps going up.
While it is good to ride the price rise in a parabolic curve, it is also very risky since the trend can break at any moment and losses can be substantial. Also, the steep price rise is usually caused by panic buying for most traders, and these “price rises” happen at a specific time or duration only. Once the price has reached unsustainable levels, the trend can immediately collapse.
How to Trade the Parabolic Run Up Pattern on eToro
For this particular discussion about the Parabolic Run Up pattern, let’s consider two assets from eToro – namely BTC and TESLA.
The first thing to remember when looking for an asset or stock with a parabolic setup is to consider the higher highs and higher lows. This means, the current high should be higher than the previous high – this is shown by the green upward candle in the image. Also, the current low should be higher than the previous low – as shown in the red upward candle in the image.
As we study the chart, we can also notice the long bullish candles on every step of the staircase. The long bullish candle dictates the new level on the parabolic curve. Depending on the size of the long bullish candle, the curve can be very steep or mild.
Entry and Exit Points on a Parabolic Run Up Pattern
So, what’s the best point of entry and exit on a Parabolic Run Up pattern?
There are actually a few ways on how to establish entry and exit points on a parabolic curve, but for this article, we’ll just be focusing on two of the commonly used ways.
Entry and Exit Points using Moving Average
The first way to establish entry and exit points on a Parabolic Run Up pattern is by using a Moving Average line. The Moving Average line is drawn by connecting specific average price values. For the examples below, we’ll be using a Moving Average value of 30 – this means, a line is drawn with a 30-day interval. The values used for the Moving Average will depend on how close you want your curves to the candles. Higher MA (Moving Average) values mean a greater distance from the candles, while smaller MA values mean the line is closer to the candles.
The entry points in this regard are established whenever the price drops until it reaches or touches the Moving Average line. And for the exit points, always consider exits close to the long bullish candles. With such exits, you can always secure gains as the price goes up.
Entry and Exit Points using Flag Patterns
Another way to establish entry and exit points in a Parabolic Run Up pattern is by using another pattern – which is the flag pattern. Flag patterns are popular patterns used to determine breakout points and trend reversals.
To create a flag pattern, simply draw a line connecting the highs of a candle – this will serve as the pole of the candle. After which, draw a box or rectangle connecting the highs and lows after the pole – this serves as the flag.
From the flag pattern, the entry points will be at the tip of the flag. As discussed in our other articles about the flag pattern, the tip of the flag is where trend reversal will start. Therefore, for the Parabolic Run Up pattern, it is where price rise will start – these will be the best entry points, as shown in the image below.
As for the exit points, it will be at the tip of the pole.
Additional notes when trading with a Parabolic Run Up Pattern
Now there are a few more things to consider when trading with the Parabolic Run Up Pattern to improve gain possibilities and to lower risks.
The first is to execute trades as quickly as possible. We’ve mentioned earlier that this pattern occurs when there is a panic buying among traders. While prices go up quickly, it also goes down as fast. This is why it is important to prepare your entry and exit points, to avoid being left behind.
Another thing to note is the Moving Average value. There will be instances when the candle may penetrate and may not reach the specified moving average. For such cases, it is best practice to make use of other indicators such as RSI, MACD, and Volume. With these additional indicators, you will be able to gauge when the price will bounce.
The Parabolic Run Up pattern is indeed a great chart pattern for traders who wish to gain profits from steep price rise brought about by panic buying and volume surge from buyers. It creates multiple gain opportunities from every step of the staircase. The only way to guarantee gains however is to be knowledgeable of the best entry and exit points. With diligent patience, and by putting into practice the valuable information mentioned in this article, you can have a better chance of riding the wave of the Parabolic Run Up Pattern.
Enjoy and Good Luck!
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